Charge cards give business owners access to spending without pre-set limits or interest rates, and in some cases also offer rewards such as points towards shopping or eating out.
Here’s a closer look at what a charge card is, how it works and the benefits it can bring to your business.
What is a charge card?
A charge card is a payment card for business owners to make purchases and pay for them later, but unlike a credit card you must clear the balance every month - or over slightly longer periods with some cards.
For example, the American Express® Business Gold Card gives Cardmembers up to 54 days to pay for their purchases¹.
Charge cards don't come with pre-set spending limits in the same way that credit cards do, and because the balance must be paid in full at the end of each billing cycle, no interest is incurred.
How do charge cards work?
You can spend on a charge card in the same way as a credit card. This means charge cards can be used in certain shops, restaurants, online, in cash machines, over the phone and abroad. But because charge cards do not come with pre-set spending limits in the same way as credit cards, they can also make it easier for businesses to make large one-off purchases.
Carl Holloway, co-founder of staff rota software company Rotaready, has an American Express Business Gold Card that he uses for monthly expenses like marketing and for paying his cloud hosting providers.
Holloway opted for a charge card after his business debit card started incorrectly rejecting legitimate payments as fraudulent.
“As a web-based software provider, it’s critical that our services and hosting providers are paid, otherwise we run the risk of our software going offline,” says Holloway. He says that since switching to an American Express Business Gold Card, all of his previous payment problems have been resolved.
Charge Cards like those by American Express offer rewards when you spend, many of which can be used for business travel, employee perks or reinvested back into your business.
How do charge cards affect your credit score?
Provided you pay the balance in full every month, spending on a charge card won’t have any negative impact on your credit score.
This is because, unlike credit cards, spending on charge cards cannot be included in your company's credit utilisation ratio or 'rate'. This rate is based on your business' revolving credit, which is its level of credit with no fixed end date, such as credit cards.
A high utilisation rate works against your credit score, as it highlights that you are heavily using a line of credit, says John Edwards, chief executive of the Institute for Financial Accountants.
He adds that this gives charge cards an advantage.
“As charge cards don’t have an extended limit, they cannot be included in your credit utilisation ratio, which means you can spend as much as you want in a month, without impacting your credit score in this way,” he says.
You just need to ensure you don’t miss a monthly payment, he notes.
There is potential for a charge card to have a negative impact on your credit score if you apply and are refused.
Charge card vs credit card
Here’s a closer look at the differences between charge cards and credit cards:
Spending limits
Credit cards have pre-set spending limits based on your income and credit score, while charge cards do not.
Repayment terms
The balance of a charge card must be repaid in full, on time, every month, whereas the balance on a credit card can be rolled over from month-to-month provided it remains within your limit.
Interest charges
A charge card does not incur interest charges, whereas credit cards are subject to interest charges if you only pay the minimum required amount in each billing period.
Annual fees
You usually have to pay an annual fee for a charge card, but low or no annual fees for a credit card.
Examples of charge cards
Here are two examples of Charge Cards that American Express offers UK business owners:
American Express Business Gold Card
There is no annual fee for this Card for the first 12 months and thereafter it is £195. Cardmembers can have up to 54 days to pay for purchases and can redeem their points with platforms like Airbnb, Amazon and British Airways.
American Express Business Platinum Card
The annual fee for this Card is £650. Like the Business Gold Card, Platinum Cardmembers can also access up to 54 days to pay for purchases. However, the Platinum Card offers much more extensive rewards, including £200 in annual travel credit, access to airport lounges and hotel benefits.
Charge card advantages
Business Charge Cards can be invaluable for helping businesses to more efficiently manage cash flow. They are “ideal” for large individual purchases or ad hoc spend, as the spending is not included in your credit utilisation rate, says Edwards.
At the same time, the requirement to repay your balance in full every month means you don’t incur interest charges or rack up debt. “Charge cards are best suited to businesses that have good cash flow or that want to give their employees a card to use for expenses without incurring the traditional interest charges experienced with a credit card,” says Edwards.
For businesses that incur high costs in making their products, charge cards offer valuable rewards for all those payments made to suppliers.
With the American Express Business Gold Card you can earn 1 Membership Rewards® point for every pound you spend². Not only that, but main Cardmembers can also give Employee Cards to their staff to help simplify expenses and earn points from their spending as well³.
Holloway has given Employee Cards to his heads of sales and heads of marketing, so that they can cover their travel and entertainment expenses without having to pay out of their own pocket and wait for the company to reimburse them. “This is very helpful and saves us a lot of time when processing expenses,” Holloway adds.
Charge card considerations
Since the balance of a charge card must be paid in full each month, this can mean less flexibility on when you meet your expenses.
You will also likely have to pay an annual fee for a charge card.
Finally, while all purchases of goods valued between £100 and £30,000 made on credit cards are protected under a UK law called the Consumer Credit Act[1], this law does not extend to purchases made on charge cards. Instead, charge card providers typically offer their own "chargeback" schemes to offer security on purchases. American Express operates a chargeback scheme with Merchants to help protect Cardmembers in the event of disputes.
[1] Which?, Section 75 of the Consumer Credit Act
1. The maximum payment period on purchases is 54 calendar days on Business Gold & Business Platinum Charge Cards and 42 calendar days on the Business Basic Charge Card, it is obtained only if you spend on the first day of the new statement period and repay the balance in full on the due date. If you'd prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Business Basic Card.
2. Membership Rewards points are earned on every full £1 spent and charged, per transaction. Terms and conditions apply.
3. Employee Cards allow you to share the benefits of your American Express Card with others close to you. You will be the main Cardmember and you will be liable for all charges made on the Employee Card(s). Employee Cardmembers must be aged 18 or over. Written details available on request. Approval subject to status and Terms and Conditions.
